Monthly Archives: March 2009

Weekly Newsletter — March 30, 2009

Energy Tax Revenues Intended to Fund Health Reform

This past week, Democrat leaders in both the House and Senate advanced the idea of using climate change legislation as a means to finance health reform, including an expansion of federal entitlements.  On Wednesday, Senate Majority Leader Harry Reid (D-NV), noting that President Obama’s budget proposed raising $646 billion in revenue from a national energy tax, called the figure “exactly how much we need for the first phase of health reform.”  The next day, House Majority Leader Steny Hoyer (D-MD) “didn’t rule out using money from a potential cap-and-trade program…to make the necessary down payment” for health reform.

Some Members may be concerned by these developments, for several reasons.  First, a national energy tax would result in tax increases of up to $3,128 per family in higher energy costs, as well as up to 7 million job losses.  Congressional Budget Office Director Elmendorf further admitted on Thursday it is “unlikely” that such a tax would cause any goods not to rise in price—resulting in additional indirect tax increases on hard-working American families.  Just as important, some Members may believe that funding new health entitlements through tax increases may demonstrate a lack of focus on stringent efforts to make health care more affordable.

GAO Report Shows States Not Monitoring “Crowd-Out”

Last week the Government Accountability Office (GAO) publicly released a report requested by Senate Finance Committee Chairman Max Baucus (D-MT) regarding states’ efforts to study whether children enrolling in the State Children’s Health Insurance Program (SCHIP) were doing so after dropping private health insurance—a phenomenon known as “crowd-out.”  The report found many states were not properly monitoring the extent to which government-run health insurance was substituting for private health insurance—for instance, 19 states did not provide annual information to the Centers for Medicare and Medicaid Services (CMS), and fewer than half investigate whether applicants had access to private insurance, “which is key to understanding the extent to which crowd-out should be a concern.”

Some Members may be concerned about these developments, particularly as Congress recently enacted an SCHIP reauthorization measure (P.L. 111-3) that significantly expanded the program—without first finding out the extent to which government-run health insurance is substituting for private coverage.  With Medicare facing unfunded obligations of nearly $36 trillion, some Members may consider it unwise for Congress to have expanded SCHIP by more than $70 billion without first examining whether such a measure would increase access to coverage, or merely replace private spending with a new government entitlement.

Article of Note: Playing Monopoly

This past week, a University of Pennsylvania professor wrote an op-ed stating that Americans should not fear the creation of a government-run health program for the entire population.  The op-ed compared the competition from a government-run plan to American’s current options for mail delivery: “As with the competition between FedEx and the U.S. Postal Service, all Americans would have the option of purchasing public or private health insurance.”

Some Members would use the very same postal analogy to argue why “competition” with the federal government would never occur on a level playing field.  When it competes with the private sector, the Postal Service does so with a built-in monopoly—FedEx and other private carriers are prohibited by federal law from using residential mailboxes for deliveries.  Similarly, in health care, Medicare also holds a built-in monopoly—upon reaching retirement age, seniors are automatically enrolled in government-run Medicare, even if less-costly and higher-quality Medicare Advantage plans exist.  These and other examples caused the Director of the non-partisan Congressional Budget Office to state recently that it would be “extremely difficult” to have a government-run plan compete “on a level playing field”—precisely because the government would bias the rules in its own favor.

Independent estimates from the Lewin Group confirm that as many as 120 million Americans—including three out of every four with employer-sponsored health insurance—would lose their current coverage due to the creation of a government-run health plan.  In other words, the competition alluded to would be a virtual monopoly for government-run health care.

Read the article here:

http://www.philly.com/inquirer/opinion/41879122.html

A new Policy Brief outlining potential concerns with a government-run health plan can be found here.

Rep. Peter Roskam Op-Ed: Dim Prospects for Debt

Originally published in Washington Times, March 25, 2009

In these uncertain economic times, many Americans are asking important questions about the nation’s finances. Why were taxpayers asked to finance a $700 billion bailout of Wall Street – with up to $750 billion more on the way, according to the president?

Is it appropriate for the government to own portions of our biggest banks? And what happens if all this “stimulus” spending doesn’t improve the economy? Even beneath these important questions, there’s another, more fundamental issue that also needs to be addressed: Who will bail out the institution that has been trying desperately to bail out the economy – the federal government?

Let me explain. The Troubled Asset Relief Program bill; various bailouts to financial institutions, such as Fannie Mae and Freddie Mac; and passage of the $792 billion “stimulus” bill designed to improve the economy will lead to a federal deficit for the current fiscal year of nearly $1.8 trillion – more than triple the previous record.

Think that math is daunting? The long-term math is much worse, as the federal government’s impending entitlement obligations will far outstrip the losses of any subprime lender. Medicare faces 75-year obligations of $36 trillion, according to the trustees’ latest report. Add in Social Security, and the total rises to $56 trillion. That amounts to $746 billion – more than the size of the original TARP bill – per year, every year, for three generations.

Of course, these deficits have meaning only if someone is willing to finance them – and in the future, investors may not be inclined to do so. With the global economy in turmoil, investors in recent months have turned to Treasury bonds to guarantee the safety of their investments. Five, 10 or 20 years from now, businesses in a stronger China and India or an aggressive Russia may not want to finance Americans’ pension and health care costs and might choose instead to diversify their portfolios elsewhere.

The results of a loss of confidence in the dollar could be catastrophic. A rapid fall in the dollar would raise the price of imports, sparking inflation fears. Rising interest rates would increase the federal government’s borrowing costs at a time of fiscal stress. Also, higher financing costs for homeowners could depress the nation’s real estate market once again. If you think the mortgage crisis of the past two years was bad, America’s fiscal crisis, left unchecked, could unleash a real estate crash of even greater proportions.

The mortgage crisis has laid bare one truth, unpleasant for politicians to state but accurate nonetheless: Over the past several decades, we as a nation have spent more than we could afford. Doubtless there were abuses within the mortgage industry, and some people likely were misled. But the fact remains that some Americans bought too much house, too much car, too many clothes or supplies for their budgets.

Changing those habits will require collective sacrifice, self-discipline – and yes, no small share of pain – but it is essential for the long-term health and stability of our economy and our nation.

Similarly, the federal government needs to reform its spending obligations to make sure our promises to America’s seniors align with our future economic resources. These actions should look to slow the growth of health care costs and tackle the difficult choices head-on.

Unfortunately, President Obama’s proposed budget actually would increase heath care spending – a poor way to control the explosion in health costs. Moreover, the explosion of federal debt in the budget plan – $3.2 trillion in the next two years alone – will hinder the federal government’s ability to take swift and decisive action reforming entitlement spending.

Some are convinced the best way to slow growth in costs and save Medicare is for the government to spend yet more money and create new health care entitlements. The logic of this reasoning escapes me: After all, who would try to lose weight by eating more? Instead, we should focus first on saving Medicare for seniors and using Medicare as a model to slow the growth of health costs nationwide rather than enacting new budget-busting programs – only for the government to impose controls on patient care a few years from now, when exploding entitlement costs bring the federal budget to its knees.

For good and for ill, the last Congress passed in record time a $700 billion bailout for financial institutions in an attempt to stanch the current economic crisis. I only hope the current Congress will act half as quickly to stop the bleeding on America’s entitlement crisis so future generations won’t end up wondering why we didn’t act when we could.

Peter Roskam, Illinois Republican, is a member of the House of Representatives’ Ways and Means Committee.

Policy Brief: Why Doctors, Hospitals, and Patients Will Lose Under a Government-Run Health Plan

Summary:  While President Obama and many Democrats have advocated for a government-run health insurance plan, the ramifications of its creation would be significant and far-reaching.  Independent estimates suggest that such a plan could provide a strong incentive for employers to “dump” their current health insurance offerings—not because the government plan is more efficient per se, but because the government’s “take it or leave it” philosophy of reimbursement negotiation with providers will raise costs for private insurers who remain.  Congressional Budget Office Director Elmendorf recently confirmed this notion, testifying before the Energy and Commerce Committee that it would be “extremely difficult” to create “a system where a public plan could compete on a level playing field” against private coverage.[1]  Creating a “public health option” could result in more than 100 million Americans losing access to their current health insurance—breaking a central promise of then-Senator Obama’s campaign—while placing them in a government-run plan that could become a de facto single payer health insurance system.

Proposals:  During his presidential campaign, then-Senator Obama proposed creating a new government-run insurance plan.  While his initial plan stated the government-run plan would be open only to small businesses or those without an offer of employer-sponsored health insurance, later documents proposed opening the plan to all Americans.  In either case, the plan would not deny access or raise premiums based on health status and would include a benefits package similar to that provided under the Federal Employees Health Benefits Program (FEHBP).  Low-income individuals not eligible for Medicaid or the State Children’s Health Insurance Program (SCHIP) would receive subsidies to help finance coverage, either for the government-run plan or private coverage through a national exchange.

Similarly, in November, Senate Finance Committee Chairman Max Baucus released a white paper outlining his vision for a reformed health care system.  His agenda also would create a new government-run plan that would “abide by the same rules as private health insurance plans participating in the Exchange” with respect to benefits and premiums.  Sen. Baucus’ language leaves unclear the issue of whether the government-run plan would pay providers at Medicare reimbursement rates or the higher levels most private carriers pay, noting only that reimbursement would be determined “by balancing the goals of increasing competition and ensuring access for patients.”

Current Status of “Competition” in Medicare:  President Obama’s budget includes a proposal to create “competitive bidding” for privately-run Medicare Advantage (MA) plans that offer benefits to seniors.  However, an examination of both the Obama proposal and current law reveals that the playing field between MA plans and government-run traditional Medicare is far from level:

  • The proposal requires MA plans to bid against each other—but traditional Medicare will not be required to compete.
  • The proposal does nothing to modify traditional Medicare’s in-built bias under current law, whereby seniors are automatically enrolled in traditional Medicare unless they choose otherwise—even if a higher quality and more affordable MA plan exists.
  • The proposal does not permit supplemental benefits offered to low-income seniors to “wrap-around” an MA plan offering—to obtain those extra benefits, seniors must enroll in the government-run plan.

Some Members may also view the double standards set by the Obama budget as evidence to oppose a government-run health plan, because Democrats are unlikely to create a truly level playing field for MA plans to compete against government-run Medicare.

Administrative Pricing and Cost Shifts:  Traditional Medicare’s other built-in bias lies in its administrative pricing structure, whereby reimbursement levels are set through legislative and bureaucratic formulae, where providers (both doctors and hospitals) may either accept or reject the government’s price.  This “take it or leave it” philosophy differs appreciably from private health insurance plans—and results in reimbursement rates to physicians and hospitals significantly lower than market norms.  Testifying before the Senate Finance Committee, CBO Director Elmendorf noted that in 2006, Medicare physician reimbursement rates averaged 20% less than private insurance levels; for hospitals, the disparity was 30%.  In Medicaid, the variation was even greater: a 40% gap in physician payment levels, and 35% for hospitals.[2]

The result of this lower reimbursement structure within government-run plans has been a rise in private health insurance premiums—as physicians and hospitals shift their costs from public payers to private ones.  A recent study by the consulting firm Milliman found a total of nearly $89 billion in cost-shifting from Medicare and Medicaid on to commercial payers.  As a result, families with private health insurance spend nearly $1,800 more per year—$1,512 in higher premiums (paid by both employers and employees) and $276 in increased beneficiary cost-sharing—to cover the below-market reimbursement levels paid by Medicare and Medicaid.[3]  The study reveals the broad extent of the perverse cross-subsidization present between the private and government-run health insurance markets, which may lead many Members to be concerned about the implications of broadening such cost-shifting even further through creation of a government-run health insurance plan.

In addition, most Members believe that Medicare does not appropriately price all physician and hospital services—as both Democrats and Republicans have been quick to propose alterations to Medicare’s pricing structure.  For instance, the “stimulus” bill placed a moratorium on proposed changes to hospice reimbursement, and legislation last July delayed a scheduled reduction in physician reimbursement levels—while providing for a 21% cut in January 2010.  If Members believe that physicians should not receive a 21% pay cut next January, then they may believe that traditional Medicare’s pricing mechanisms serve as an inappropriate mechanism to compare the “efficiencies” of government-run plans, or to serve as the foundation for a new government-run health insurance plan.

Enrollment in a Government-run Plan:  Actuaries at the Lewin Group compiled estimates for the potential enrollees in a government-run plan—coupled with the number of individuals who would drop and/or lose access to their current private health insurance.  The scenarios vary based on whether the government-run plan would be open solely to small businesses of under 25 workers, the self-employed, and the residual insurance market (i.e. those without access to employer-sponsored coverage), as then-Senator Obama first proposed, or whether the plan would be open to all Americans, as both he and Chairman Baucus later suggested.  Lewin also factored in the potential reimbursement levels such plans may offer, and developed three scenarios based on Medicare payment rates, reimbursement rates paid by private insurance, or a blend between the two.

According to the Lewin model, enrollment in private insurance would drop by at least 10 million individuals in all cases—and in the event of a government-run plan open to all, and offering Medicare-level reimbursement rates, would result in 118.5 million individuals dropping their private coverage.[4]  Enrollment in the government-run plan would range from 17 million in the low estimate (limited eligibility, private reimbursement rates) to over 130 million—more than half the under-65 population—in the high estimate (open eligibility, Medicare reimbursement rates).  Notably, in the scenarios where the government-run plan paid below-market reimbursement levels (either Medicare rates, or a blend of Medicare and private rates), total enrollment in the government-run plan exceeded the reduction in uninsured populations—suggesting that such a plan would focus primarily on cannibalizing enrollees by encouraging employers to drop their current health insurance offerings.[5]

Impact on Providers:  The Lewin study also analyzed the impact of various reimbursement levels on providers’ overall revenues.  In cases where a government-run plan open to all reimbursed at Medicare payment rates, the reduction in uncompensated care costs caused by fewer uninsured Americans was outweighed by the tens of millions of individuals previously with private insurance switching (voluntarily or otherwise) to a government-run plan with much lower reimbursement levels.  As a result, hospitals’ total revenue plunged by nearly 5% ($36.5 billion), and physicians’ total revenue declined by nearly 7% ($36.4 billion).  Even if a government-run health plan reimbursed at a blend of private and Medicare payment rates, physicians’ total revenue would decline by more than 3%—this despite tens of millions of newly insured patients lowering uncompensated care totals.[6]

While supporters of government-run health insurance may argue that the crowd-out figures showing vast movement from private health insurance to a government-run plan would represent the government’s “efficiency” in delivering health care, many Members would cite the revenue impact on providers as evidence of the government’s harmful and distortionary effects.  Any scenario whereby provider revenues are reduced after an increase in the number of insured patients would by definition reflect a perverse intervention by government into the marketplace, and cause many Members concern that such developments could result in patients losing access to providers and/or poorer quality care.

Implications of Government-run Plan:  A government-run health plan enrolling as many as 130 million Americans could have significant implications for the entire health sector, particularly given the market distortions the insertion of a government-run plan would create on existing insurance markets.  Some of the adverse effects that could cause many Members concern include the following:

Employers Dropping Coverage and a Potential “Death Spiral”:  As noted above, the introduction of a government-run plan—particularly one that reimbursed at below-market rates—would result in significant dislocation of individuals currently covered under employer-sponsored or other insurance on to the government-run plan.  As a result, higher cost increases could be passed on to those private insurance plans that remain—as providers attempt to shift even larger reimbursement disparities on to the remaining private payers—eventually driving all or most private health insurance plans out of the market.  Specifically, the Lewin Group’s analysis of a Commonwealth Fund proposal to establish a government-run plan noted hundreds of billions in savings for employers, largely “resulting from the shift of employers to the public plan”—in other words, businesses who currently offer coverage “dumping” their insurance plans and placing their employees on the government-run program.[7]  Such a scenario would not only represent a break from then-Senator Obama’s promise that “If you like the health insurance you have, you can keep it,” but could transform the United States into a de facto single payer health care system similar to Canada and Britain.

Poorer Coverage and Access to Care:  While some Democrats have touted “Medicare for All” as a possible avenue to achieve comprehensive health reform, many Members—and many Americans—might be concerned by the relatively paltry level of health insurance benefits that a government-run health plan would provide.  Medicare has only provided full prescription drug benefits for three years—and still contains no caps on catastrophic out-of-pocket spending, unlike most employer plans and all plans associated with Health Savings Accounts (HSAs).  Testifying before the Finance Committee, CBO Director Elmendorf noted that the Medicare benefit has an actuarial level of coverage about 15% lower than the standard employer-provided plan—one reason why only 17% of Medicare beneficiaries rely solely on Medicare coverage.[8]  These statistics led one reporter to highlight the extra benefits Medicare Advantage plans provide “relative to bare-bones government plans”—meaning traditional Medicare.[9]

In most states, Medicaid plans provide even less attractive coverage to beneficiaries, as low provider payment rates, even when compared to Medicare plans, result in significant beneficiary access problems, particularly with respect to medical specialists.  For instance, a recent Centers for Disease Control study found that Medicaid patients visit the emergency room at nearly twice the rate of uninsured patients—suggesting that a Medicaid card does not mean that beneficiaries are receiving adequate primary care.[10]  Poorer Americans often prefer other forms of health insurance when compared to Medicaid; a study by the liberal Commonwealth Fund found that among individuals earning less than twice the poverty level, private insurance outnumbered Medicaid as the preferred method of health coverage by more than two-to-one.[11]  Even Energy and Commerce Committee Chairman Waxman recently admitted that “it is highly unlikely that you are going to find any millionaires who would like to go on Medicaid”—raising the question of why a plan so unattractive to wealthy individuals constitutes an acceptable health insurance plan for millions of less affluent Americans who may have no alternative coverage option.[12]

Given the current state of Medicare and Medicaid, many Members therefore may be concerned that the creation of a government-run plan would result in as many as 118 million Americans losing coverage they have—and like—because their employers decide to “dump” their workers into an inferior, though much less costly, form of government coverage.

Fraud:  Waste, abuse, and outright fraud have been endemic to government health programs for decades—a fact Chairman Baucus acknowledged in his November white paper, even as he advocated for a government-run health insurance plan.  One former New York state investigator has asserted that as much as 40% of the state’s Medicaid spending consisted of questionable or outright fraudulent claims.[13]  For instance, the New York Post recently highlighted an investigation into a single provider who billed $1.2 million in allegedly fraudulent claims providing prosthetic eyes to individuals with normal eyesight—whereas the billing and claims systems of most private insurance plans would have prevented such claims from ever being paid.[14]

Similarly, a recent series of articles in CQ Weekly highlighted persistent problems with wasteful and fraudulent spending in the Medicare program.  Official estimates place the amount of Medicare fraud in the tens of billions per year—but officials admit that the amount could be higher, reflecting frauds never detected.[15]  As the head of the Justice Department’s Miami anti-fraud task force notes, “Once you—or someone who wants to commit fraud—have patients with Medicare numbers, and those patients are willing to cooperate with you, you can commit any kind of fraud you want.”[16]  Some Members may be concerned that a government-run health care plan would be ripe for similar incidence of widespread fraud—which would represent a waste of taxpayer dollars, while undermining the argument that government plans are more “efficient” than private health insurance.

Government Care Means Government Control:  Government programs constitute nearly half of all health care spending, and increasing government’s market clout still further may well lead to rationing of procedures as a way to contain costs.  Such actions would be entirely consistent with the philosophy of OMB Director Peter Orszag, who as head of the Congressional Budget Office prepared a report supporting the use of cost effectiveness research to determine reimbursement levels in government plans, while admitting that “patients who might benefit from more-expensive treatments might be made worse off” as a result of policy changes that tie insurance reimbursement to cost-effectiveness criteria.[17]  The federal government already imposes price controls on doctors, hospitals, and pharmaceutical companies—leading some Members to wonder when controls on patient procedures will follow.

Funding and the Status of Current Entitlements:  According to last year’s trustees report, Medicare currently faces unfunded obligations of nearly $86 trillion.  That number will likely grow this year—and the projected exhaustion date for the Hospital Insurance (Part A) Trust Fund could be accelerated by as much as three years, to 2016.  While the Administration asserts that Medicare’s spiraling debt levels require comprehensive health reform in order to slow the growth of health costs, the Obama budget actually increases health spending—which many Members may be concerned would only exacerbate the current problem.  Therefore, some Members may support resolving the long-term sustainability of current entitlements—saving Medicare first, while also reforming Medicaid, as models for the way to slow the growth in health costs—before creating any new government programs.

Conclusion:  Many Members may be strongly concerned about the implications of creating a government-run health plan to “compete” against current insurance plans.  While such a competition may sound appealing in theory, Members may be highly skeptical that a truly level playing field could ever exist between a government-run plan and other options—particularly when the government’s prime efficiency consists of shifting costs on to private payers.  The estimates of the more than 100 million Americans who could be placed into such a government-run plan would represent not government’s “success” in a “competition” but the eradication of private health insurance by a government able to spend unlimited sums to compete against employers unable to bear the costs shifted upon them.  Some Members may therefore view a government-run plan as the first step towards creating a government-run health care system where all Americans have access to a mediocre system—and therefore oppose its creation as both antithetical to our current system of government and likely to result in poor health care for millions of Americans.

Instead, many Members may support reforms to the current tax code that would equalize the tax treatment of health insurance to provide greater incentives for individuals to purchase coverage.  Members may also support reforms permitting greater variety in insurance plans—encouraging innovation and allowing individuals to choose for themselves the plan that best meets their needs—as well as voluntary “premium support” offerings in current government-run programs like Medicaid that allow beneficiaries to use government dollars to purchase private health insurance.  Through these and other similar proposals, Members may offer alternatives that provide choice of quality, affordable health insurance—while ensuring that doctors and patients, rather than government bureaucrats, determine treatment options for all Americans.



[1] Testimony of Douglas Elmendorf, Congressional Budget Office Director, before House Energy and Commerce Committee hearing on “Making Health Care Work for American Families,” March 10, 2009.

[2] Testimony of Doug Elmendorf, Congressional Budget Office Director, before Senate Finance Committee on “Options for Expanding Health Insurance Coverage and Controlling Costs,”  February 25, 2009, available at http://www.cbo.gov/ftpdocs/99xx/doc9911/02-25-Health_Insurance.pdf (accessed March 2, 2009), p. 23.

[3] Will Fox and John Pickering, “Hospital and Physician Cost Shift: Payment Level Comparison of Medicare, Medicaid, and Commercial Payers,” (Milliman, December 2008), available online at http://www.bcbs.com/news/bluetvradio/cost-shift-study-2008/us-cost-shift-20081208.pdf (accessed March 2, 2009).

[4] Lewin Group, “A Buy-in to a Public Plan,” Presentation to Senate Finance Committee Republican Staff, December 5, 2008, available online at http://www.lewin.com/content/publications/OpeningBuyInPublicPlan.pdf (accessed March 21, 2009).

[5] Ibid.

[6] Ibid.

[7] Lewin Group, “A Path to a High Performance U.S. Health System: Technical Documentation,” (Prepared for Commonwealth Fund, February 19, 2009), available online at http://www.lewin.com/content/publications/4010.pdf (accessed March 21, 2009), p. 25.

[8] Elmendorf Finance Committee Testimony; America’s Health Insurance Plans, “Low-Income and Rural Beneficiaries with Medigap Coverage,” (February 2007), available online at http://www.ahipresearch.org/PDFs/FullReportLowIncomeRuralReportFeb2007.pdf (accessed March 21, 2009), Figure 1, p. 4.

[9] Vanessa Fuhrmans, “Cuts Await Medicare Insurers,” Wall Street Journal February 26, 2009, available online at http://online.wsj.com/article/SB123560916922977285.html (accessed March 4, 2009).

[10] National Hospital Ambulatory Medical Care Survey: 2006 Emergency Department Summary (Hyattsville, MD, National Center for Health Statistics, August 2008), available online at http://www.cdc.gov/nchs/data/nhsr/nhsr007.pdf (accessed September 13, 2008), Figure 3, p. 3.

[11] Jennifer Edwards et al., “The Erosion of Employer-Based Health Coverage and the Threat to Workers’ Health Care,” (New York, Commonwealth Fund, August 2002), available online at http://www.cmwf.org/usr_doc/edwards_erosion.pdf (accessed March 4, 2009), Table 3, p. 7.

[12] Transcript of House Energy and Commerce Committee markup, January 22, 2009, lines 10251-52.

[13] Clifford Levy and Michael Luo, “New York Medicaid Fraud May Reach into Billions,” New York Times July 18, 2005, available online at http://www.nytimes.com/2005/07/18/nyregion/18medicaid.html?_r=1 (accessed March 4, 2009).

[14] Carl Campanile, “Medicaid Cops Bare Eye-Popping ‘Scams,’” New York Post February 23, 2009, available online at http://www.nypost.com/seven/02232009/news/regionalnews/medicaid_cops_bare_eye_popping_scams_156496.htm (accessed March 4, 2009).

[15] Alex Wayne, “Elusive, Expensive Target,” CQ Weekly February 16, 2009, p. 349.

[16] Alex Wayne, “Getting in Front of Health Fraud,” CQ Weekly February 16, 2009, p. 344.

[17] Congressional Budget Office, “Research on the Comparative Effectiveness of Medical Treatments,” (Washington, December 2007), available online at http://cbo.gov/ftpdocs/88xx/doc8891/12-18-ComparativeEffectiveness.pdf (accessed March 5, 2009), p. 15.

Weekly Newsletter — March 23, 2009

Democrats Support Government-Rationed Health Care

Last week’s House Energy and Commerce subcommittee hearing on health reform resulted in a significant disclosure about the Democrat health agenda.  During the hearing, Professor Uwe Reinhardt—a witness called by the Committee’s majority—was questioned about his recent New York Times blog post in which he called the views of those who “believe that health and life are ‘priceless…an utterly romantic notion, and, if I may say so, also an utterly a silly one [sic].”  In response, Dr. Reinhardt defended his rationale advocated explicit rationing of health care benefits by the federal government (the exchange begins at 2:27:45 of the video):

If you are dealing with a collective insurance fund, then those who preside over those funds do have at some point to ask themselves ‘At what price do I buy additional life-years, quality-adjusted life-years, or additional health?’…I raise the question, why should health care be the only area in an economy, in society, where I have the right to say ‘Spend the limit, spend $5 million on me, and let the taxpayer pick up the tab?’…I think that notion, to my mind, is romantic, and in fact silly.

Many Members may be concerned by these comments, which suggest that the federal government not rationing health care is “silly.”  Unlike other sectors of the economy, more than half of all health spending is paid for by the government, meaning that federal bureaucrats—not consumers, doctors, or patients—will be making the decisions on the true value of human life.  Given that other countries’ initiatives in government rationing have not slowed cost growth—but have harmed patients—some Members may support other alternatives that empower patients and doctors to take control of their health, rather than relying on federal bureaucrats to determine who will—and will not—have access to life-saving treatments.

We recently released a new document highlighting how government control and rationing of care has adversely impacted health systems in other countries; the document can be found here.

“Transparent” Administration Stonewalling on Budget Details

This week, the House and Senate Budget Committees will begin the process of marking up Congress’ concurrent budget resolution.  Yet nearly one month after President Obama submitted his budget outline document to Congress, officials at the Office of Management and Budget have refused to release the assumptions underlying their request.  These baseline assumptions involve numerous questions of policy—for instance, whether the Administration presumes that Medicaid bailout funds for states, and a new entitlement to subsidies for COBRA continuation health insurance, included in the “stimulus” will be extended further—yet the Administration has denied requests by Republican staff to release their projections.

Some Members may question why an Administration that promises “sound budget practices” and “fiscal transparency” is keeping its budgetary assumptions under lock-and-key.  Some Members may further wonder whether this lack of transparency hints at additional expansions of health care spending—including in another “stimulus” bill—not yet disclosed to the public or Congress.

Article of Note: A Liberal’s Support for Consumer Choice

Last Tuesday, Washington Post columnist Eugene Robinson used a recent personal mishap to offer his own perspective on the health care debate.  Recounting an episode from last month where a kitchen accident resulted in an infection, hospitalization, and emergency surgery, Robinson noted that the firsthand experience of a medical injury changed his view of health reform: “What’s changed is that I also feel more strongly about the ability to make my own choices.  I decided where I would be treated and, ultimately, what would or wouldn’t be done.  I’m willing to pay for that.”

While disagreeing with Robinson’s suggestion that tax increases—as opposed to spending restraint and a realignment of federal priorities—finance coverage for the uninsured, many Members may support his newfound appreciation of the power to choose one’s own doctor, hospital, and treatment.  Some Members may also agree with the comment made by Robinson’s surgeon that “‘If…Obama had [his] way with health care, it wouldn’t be me doing this operation.  It would just be some guy,’” perhaps one picked by a federal bureaucrat.

Read the article here:

http://www.washingtonpost.com/wp-dyn/content/article/2009/03/16/AR2009031602322.html

Policy Brief: Q&A on Government-Rationed Health Care Overseas

What is comparative effectiveness research?

Broadly speaking, comparative effectiveness research evaluates the relative merits of various medical treatments, in the hopes of arriving at a set of best practices for treatment of a condition.  Of critical importance is the distinction between clinical effectiveness—i.e., which treatments work best irrespective of cost—and cost effectiveness—where the most effective treatments could be deemed inappropriate because their costs outweigh the perceived benefits in the government’s eyes.

Have other countries’ use of effectiveness research caused delays in treatment?

Yes.  One of the examples cited as a model for American comparative effectiveness research is Britain’s National Institute for Clinical Excellence (NICE), established in 1999 as part of the National Health Service (NHS).  The first decade of experience with NICE has exposed difficulties in the comparative effectiveness model, including delays in the evaluation of treatments.  A June 2007 Government report found that “it has sometimes taken too long for NICE appraisal guidance to be made available on newly licensed drugs,” resulting in years-long delays for patients to access drugs already approved safe for use but not evaluated on cost-effectiveness grounds.

Does government rationing of health care affect physicians’ practice of medicine?

Yes.  In Britain, a recent study found that one quarter of cancer specialists are keeping their patients “in the dark” about available treatment options—in order to avoid upsetting those patients when they find out the NHS will not pay for their treatments.  Some Members may be concerned at the implications of this form of “self-censorship” significantly altering the doctor-patient relationship, particularly when it results in patients not receiving access to potentially effective care.

Are individuals permitted to pay for unapproved treatments using their own funds?

Not always.  Until recently, British patients who wished to obtain treatments not approved by NICE could do so—but only if they agreed to pay all follow-up costs and renounce their right to follow-up NHS care.  The effective prohibition on patients receiving NHS care from using their own money to fund treatments deemed not cost-effective sparked a massive public outcry.  Stakeholders viewed the prohibition as “despicable,” “appalling,” “uncivilised,” “spiteful,” “cruel,” “abhorrent,” “perverse,” “inhuman,” and “unjust”—even though most stakeholders agreed that some form of rationing within the NHS was inevitable.  As a result, a November 2008 report reversed the ban on so-called top-up payments, allowing patients to pay for drug therapies not deemed cost-effective by NICE while retaining access to NHS care.

If patients in the American system may supplement their Medicare or other government coverage with private funds, Members may be concerned that this “two-tier” health system would have a disproportionate impact on poorer individuals, who will not have the resources to purchase supplemental care.  Conversely, if “top-up” payments are prohibited, Members may strongly oppose an effective ban on patients using their own money to obtain care.

Has comparative effectiveness research generated significant budgetary savings?

Only to the extent that government entities are willing to ration health care based on the research.  A December 2007 CBO report admits that such decisions “could be difficult and controversial,” and further notes studies suggesting that “patients who might benefit from more-expensive treatments might be made worse off” as a result of changes in reimbursement patterns.

The British experience suggests that political considerations may mitigate any perceived savings.  For instance, in August 2008, NICE adopted a policy of refusing to pay for four kidney cancer drugs, even though the pharmaceuticals made “significant gains” in survival times, because NICE did not believe the drugs were cost-effective.  However, public outrage culminated in a policy shift, whereby NICE in January 2009 relaxed its cost-effectiveness criteria for patients in their final months of life on compassionate grounds.  Members may believe that such political pressure in the United Kingdom—a country with a consensus supporting government-rationed care—should serve as a cautionary tale to those who believe that comparative effectiveness research provides a painless solution to slowing the growth of health care costs.

Do many Democrats believe that comparative effectiveness research should be used to ration health care?

Yes.  Democrat press releases trumpeting $1.1 billion in “stimulus” funding for comparative effectiveness research cited CBO data that comparative effectiveness could generate billions in budgetary savings.  In addition, a draft Committee report describing the research funding stated that “more expensive [treatments] will no longer be prescribed” as a result of the “stimulus” funding.

In addition, the liberal Commonwealth Fund recently released its own report proposing $634 billion in savings over ten years from comparative effectiveness research and subsequent rationing of care.  The report asserts that “merely making information available” about the relative merits of treatments “is unlikely to produce” outcomes yielding sufficient savings—and therefore recommends that the new comparative effectiveness center help “to create financial incentives for patients and physicians to avoid high-cost treatments.”  Among other recommendations, the Commonwealth study presumes that the government “would specify circumstances where coverage of procedures and services is restricted on the basis of evidence on the potential benefit to patients” and double co-payments “for people who agree to receive higher cost procedures in cases where a less costly procedure is at least as effective”—which could result in patients who would benefit from more-costly treatments not having access to effective care based on government bureaucrats’ decisions.

For further information on this issue see:

Weekly Newsletter — March 16, 2009

No Level Playing Field with Government-Run Health Care

Last week’s House Energy and Commerce subcommittee hearing on health reform yielded an important revelation from Congressional Budget Office Director Doug Elmendorf.  Responding to a question from Rep. Jan Schakowsky, the new CBO head stated that “designing a system in which a public plan could compete on a level playing field is extremely difficult.”  He specifically cited the federal government’s power to dictate provider reimbursement rates in programs like Medicare as evidence that a government-run plan could undercut any private health insurer’s costs.

Director Elmendorf’s testimony squares with other independent studies, which have found that cost-shifting from government-run to private health insurance plans would significantly undercut existing insurance coverage.  For instance, actuaries at the Lewin Group, when analyzing President Obama’s campaign proposal to establish a nationalized health insurance plan, found that up to 118 million individuals—nearly 6 of every 10 Americans with private health coverage—would lose access to their current health insurance if a government-run plan were established, and that more than 130 million individuals would enroll in the nationalized insurance plan.  When analyzing a similar proposal from the liberal Commonwealth Fund, the Lewin Group also found that the transition away from employer-sponsored coverage would be far from voluntary; the report projects hundreds of billions in savings for employers, largely “resulting from the shift of employers to the public plan”—in other words, businesses who currently offer coverage “dumping” their insurance plans and placing their employees on the government-run program.

Based on these data, some Members may be concerned by the implications of creating a nationalized health insurance option, particularly the dislocation of existing workers who may well be satisfied with their current coverage.  Members may also be concerned about the budgetary implications of creating such an expansive new entitlement—particularly given Medicare’s nearly $86 trillion in unfunded obligations—and whether this new government program would exercise controls on patient care as the sole means available to slow the growth of costs.

Members may instead support less radical alternatives to the nationalized insurance plan that would focus more on expanding access to care for individuals of limited means.  Providing incentives for low-income individuals to afford coverage, expanding choices for individuals to purchase the plan that best meets their needs, and promoting healthy behaviors would all serve to expand access while slowing the growth of health care costs—alternatives that Members may prefer to a massive new government plan that could harm those happy with their current health insurance options.

What the MedPAC Report Doesn’t Examine

On Tuesday, the Medicare Payment Advisory Commission (MedPAC) will testify on its annual recommendations regarding Medicare payment policy.  An expected point of contention will be MedPAC’s support of “financial neutrality” between traditional Medicare and Medicare Advantage (MA) plans.  However, while the MedPAC report discusses the need for competition between traditional Medicare and MA plans, some Members may believe the Commission’s recommendations focus primarily on squeezing MA plans financially, while doing nothing to address traditional Medicare’s inherent biases:

  • The Commission does not propose to modify traditional Medicare’s built-in monopoly under current law, whereby seniors are automatically enrolled in traditional Medicare unless they choose otherwise—even if a more efficient and affordable MA plan exists.
  • The Commission does not propose that supplemental benefits offered to low-income seniors should be able to “wrap-around” an MA plan offering—to obtain those extra benefits, seniors must enroll in the government-run plan.
  • The Commission does not disclose how much more the federal government will pay—and seniors could pay—for prescription drug coverage if MA plans drop out of Medicare, as low bids by MA plans offering pharmaceutical coverage have helped result in total Part D spending much lower than projected.

Given MedPAC’s consistent focus on cutting MA plan payments—while ignoring the issues addressed above—some Members may question whether the Commission is examining comprehensive solutions for Medicare reform in an unbiased, non-partisan manner.  Some Members may also view the double standards set by the MedPAC Commissioners as further evidence to oppose a nationalized health plan, because supporters of government-run health insurance will never create a truly level playing field for MA plans to compete against government-run Medicare.

Weekly Newsletter — March 9, 2009

Government-Run Plan Could Cause Millions to Lose their Current Coverage

Following on the heels of last week’s “health care summit,” both the House Ways and Means and Energy and Commerce Committees will hold hearings this week on health care reform options.  However, while President Obama has stated that those who like their current health insurance should be able to keep it, several studies suggest that Democrat health reform proposals may result in significant changes for millions of Americans.

For instance, the left-leaning Commonwealth Fund recently released its own report outlining ways to generate savings within the health sector—one of which involved a proposal, also supported by President Obama, to establish a nationalized health insurance plan to “compete” with private insurance coverage in a new Connector or insurance Exchange.  The report’s technical appendix shows that less than one-quarter of those with employer-sponsored coverage—only 37.5 million out of 153.8 million currently receiving coverage through their employer—would maintain that coverage.  Virtually all of the rest would have their coverage shifted to the Connector—and, the report notes, two-thirds of those would end up on the government-run program.  The appendix also notes that this transition would be far from voluntary; the report projects hundreds of billions in savings for employers, largely “resulting from the shift of employers to the public plan”—in other words, businesses who currently offer coverage “dumping” their insurance plans and placing their employees on the government-run program.

The Lewin analysis of the Commonwealth report echoes a prior study of the Obama campaign proposal to establish a nationalized health insurance plan.  That estimate found that up to 118 million individuals would lose access to their current private health insurance if a government-run plan were established, and that more than 130 million individuals would enroll in the nationalized insurance plan.

Based on these data, some Members may be concerned by the implications of creating a nationalized health insurance option, particularly the dislocation of existing workers who may well be satisfied with their current coverage.  Members may also be concerned about the budgetary implications of creating such an expansive new entitlement—particularly given Medicare’s nearly $86 trillion in unfunded obligations—and whether this new government program would exercise controls on patient care as the sole means available to slow the growth of costs.

Members may instead support less radical alternatives to the nationalized insurance plan, that would focus more on expanding access to care for individuals of limited means.  Providing incentives for low-income individuals to afford coverage, expanding choices for individuals to purchase the plan that best meets their needs, and promoting healthy behaviors would all serve to expand access while slowing the growth of health care costs—alternatives that Members may prefer to a massive new government plan that could harm those happy with their current health insurance options.

Articles of Note: Problems with the Status Quo

Two recent articles, published in the same week, highlight the problems with the health system—specifically, the Medicaid program.  In the first, the New York Times cited a report noting that many Medicaid beneficiaries who remain eligible for the program often lose coverage when attempting to renew their benefits due to paperwork and related logistical difficulties.  In the second, the New York Post reported on an investigation whereby a single provider billed Medicaid for $1.2 million in allegedly fraudulent claims for prosthetic eyes for patients with normal eyesight.

Reading both these articles, many Members may be concerned that wasteful and fraudulent spending is improperly restricting access to care for millions of Medicaid beneficiaries.  Some Members may also believe that instead of spending additional money on the current flawed system—as Democrats did by providing $90 billion in “stimulus” funding for Medicaid—Republicans should explore solutions that can crack down on fraud, improve beneficiaries’ quality of care, and provide options for beneficiaries to voluntarily use Medicaid dollars to supplement private health insurance premiums.

House Republican Conference Chairman Mike Pence wrote an op-ed published in Investor’s Business Daily this week articulating many of these same problems, along with principles for reform; the article may be found here.

Rep. Mike Pence Op-Ed: The Morality of Health Care

Originally published in Investor’s Business Daily, March 7, 2009

“What it’s supposed to do for people doesn’t get done in reality.”

The speaker criticizing this government program wasn’t talking about the federal response to Hurricane Katrina, or failing inner-city schools. Instead, the chief operating officer of a Bronx health clinic was criticizing Medicaid, a program that in theory provides health care coverage to more than 50 million Americans.

In his budget blueprint, President Obama promises $1 trillion in new health care spending to expand the Medicaid program — and create a new government health insurance program — with many of the flaws of the current one.

Even as the White House convenes a health “summit” designed to build support for yet more entitlement spending, it’s important to remember that our current entitlements often neglect the poorest and most vulnerable Americans.

Investigations by the New York Times in 2005 confirmed the often-cited problem that a Medicaid insurance card doesn’t guarantee quality care. In fact, it doesn’t guarantee care at all.

The report cited Medicaid as paying $24 to specialists in New York City for an office visit — not nearly enough to cover physicians’ true costs. Not surprisingly, few specialists decide to participate in Medicaid, so patients must wait — and wait and wait — to receive care.

Meanwhile, the New York Medicaid program’s spending ranks highest in the country, likely because 40% of Medicaid spending goes to questionable or fraudulent claims, according to a former state investigator.

The overall picture is one of a dysfunctional Medicaid program struggling to meet the health care needs of the poorest Americans. Yet these systemic problems are rarely mentioned when talking about health care reform.

While Democrats talk about the “moral imperative” of covering all Americans, few words have been spoken for those who have a public insurance card — but no access to care.

Consider the case of Deamonte Driver, a 12-year-old Maryland boy, who died in 2007 when a tooth infection spread to his brain. A simple extraction costing under $100 could have saved his life — if his mother had not had to wait five months for Deamonte and his brother to receive treatment under Medicaid.

Testifying before Congress about this tragedy, a case worker who helped Deamonte’s family criticized a culture “that clearly condones gross underperformance” at both the state and federal levels and has become “accepted and widespread.”

It is a culture that required Deamonte’s mother plus a lawyer, three call center workers and a call center supervisor to schedule a single dental appointment.

It is a culture that lets a dentist in Brooklyn bill Medicaid for many patient visits in the same day, yet turns away a poor teenager three times without even asking her to fill out a Medicaid application.

It is a culture that fails the poorest and most vulnerable in our society and a culture that money alone will not fix.

Democrats and the president have focused on increasing federal Medicaid spending as an economic “stimulus.”

Providing $90 billion in new federal Medicaid spending without reforming the program, as the recent “stimulus” bill did, will not ensure better coordination of beneficiary care, will not create an administrative bureaucracy more responsive to patients and providers, and will not crack down on fraudulent spending that squeezes state and federal budgets alike.

A better way exists, and that is fundamental reform. One building block of reform would focus on a major inequity in the tax code. That code says individuals whose employers can’t afford to provide coverage — like Deamonte Driver’s mother — must use after-tax dollars to purchase health insurance.

That means that many hardworking people least able to afford insurance premiums must pay 30% to 50% more for coverage. Fixing this inequity in our tax code would let more individuals purchase their own policies.

When combined with insurance reforms that provide access to chronically ill people, and reforms that let state Medicaid dollars supplement private insurance premiums, many more people will have quality insurance coverage.

Unfortunately, our Democratic colleagues have blocked states’ efforts to test innovative ideas that would provide the improvements Medicaid needs — reforms designed to ensure coverage people can use, not just an empty promise of care.

Republicans see a better way.

Our party recently formed a task force to craft a proposal that would ensure true reform of our health care system, including proposals to improve the health or lives of those many Americans who need it most.

Our Democrat friends may be well-intentioned. But their plans would expand a failed government culture that has neglected the poor Americans it is supposed to serve. Throwing more taxpayer money at a structurally flawed program is not an audacious hope. It is a false one.

• Pence is chairman of the House Republican Conference.

Policy Brief: Ten Facts about President Obama’s Health Proposals

President Obama’s budget proposal includes nearly $1 trillion in new health care spending—a $634 billion reserve fund as a “down payment” for expanded coverage, and nearly $350 billion in un-offset increases to physician reimbursements and other government programs.  The fund would be paid for in part through $318 billion in tax increases on filers who itemize, “competitive bidding” for Medicare Advantage plans, and tighter government price controls on drug makers:

1.      More Spending Will Not Control Costs.  At a time when government actuaries projected that health spending will jump from 16.6% to 17.6% of GDP this year alone, President Obama’s plan would propose nearly $1 trillion in new health spending—on top of the $150 billion in health spending already passed in the “stimulus” bill.
 
2.      Government Spending Means Government Control.  Administration officials confirmed they will seek legislative authority to impose a “least costly alternative” reimbursement policy for Medicare—a policy of rationing access to care consistent with a draft House Committee report saying that “more expensive [treatments] will no longer be prescribed” as the result of research into the effectiveness of various treatments.

3.      “Competitive Bidding” a Sham.  The budget proposes a new “competitive bidding” program for Medicare Advantage plans—but traditional Medicare will not be required to be competitive.  Moreover, this one-sided “competition” will only occur after Medicare Advantage plans receive three years of arbitrary and harmful cuts that will drive plans from this successful program and limit seniors’ choice of insurance options.
 
4.      Undermines Cancer Agenda.  The budget proposes $6 billion in new cancer funding for the National Institutes of Health—but limits individuals’ ability to deduct donations to charities like the American Cancer Society, and imposes new drug price controls that will discourage companies from developing new cancer therapies.

5.      Weakens Medicare’s Solvency.  Because the budget includes $330 billion in increases to physician reimbursements—without proposing offsets for this new spending, as Congress has done in the past—Medicare spending will actually rise under the President’s proposals, exacerbating Medicare’s nearly $86 trillion in unfunded obligations.

6.      Prolongs Downturn in Housing Market.  In order to pay for the health care reserve fund, the budget proposes to reduce certain individuals’ ability to deduct mortgage interest—even though the Congressional Budget Office predicts that housing starts in 2011 will still be at or below levels last seen in the early 1990s.

7.      Undermines Parental Control.  A proposed expansion of family planning programs through Medicaid would permit children of any income level to qualify for family planning services without parental approval.

8.      Raids Medicare and Medicaid Funds.  The budget includes proposed $24 billion in savings from the Medicare and Medicaid Improvement Funds.  According to current law, the Medicare Improvement Fund is designated specifically “to make improvements under the original Medicare fee-for-service program.”

9.      Harms Medical Innovation.  The budget would generate nearly $20 billion in savings from increased government price controls on the pharmaceutical industry—a one-time savings that would do nothing to slow the long-term growth in health costs, while permanently harming the research on treatments that can cure or improve a myriad of diseases.

10.  Budgetary Gimmick.  The budget presumes that spending on the State Children’s Health Insurance Program will drop by 66% in Fiscal Year 2014—a reduction many Members may consider unrealistic, and therefore intended to mask the true size of the Administration’s spending proposals.

Policy Brief: Obama Budget Proposes Health Care Rationing

The budget proposal submitted by President Obama includes nearly $1 trillion in new health care spending—a $634 billion reserve fund as a “down payment” for expanded coverage, and more than $330 billion in un-offset increases to physician reimbursements and other government programs.  Below is background material on the implications of one of these proposals.

  • The Obama budget includes language promoting “changes in the [health care] delivery system to reduce unnecessary variability in patient care”—which some Members may be concerned could result in a “one-size-fits-all” health care delivery model, where government bureaucrats determine what treatments and procedures are “unnecessary.”
  • Administration officials have confirmed that they will use their more detailed budgetary submission in April to request legislative authority for the Centers for Medicare and Medicaid Services (CMS) to implement a “least costly alternative” policy—which will allow CMS to deny coverage for treatments deemed more costly than other treatments purportedly of similar effectiveness.
  • The Administration proposal is consistent with the philosophy of OMB Director Peter Orszag, who while head of the Congressional Budget Office prepared a report supporting the use of effectiveness research—including cost effectiveness research—to determine reimbursement levels, while admitting that “patients who might benefit from more-expensive treatments might be made worse off” as a result of policy changes that tie insurance reimbursement to cost-effectiveness criteria.
  • The Administration’s proposal is also consistent with draft Committee report language written by House Democrats, stating that “more expensive [treatments] will no longer be prescribed” as a result of $1.1 billion in comparative effectiveness research included in the “stimulus” bill.
  • Members may also note that the left-leaning Commonwealth Fund released its own report last month asserting that comparative effectiveness research could yield $634 billion in savings—the entire amount of President Obama’s proposed health care reserve fund.  The report admitted that “merely making information available” about the relative merits of treatments “is unlikely to produce” outcomes yielding large savings—and therefore recommended that a new comparative effectiveness center help “to create financial incentives for patients and physicians to avoid high-cost treatments.”

Government programs constitute nearly half of all health spending, and increasing government’s market clout still further will, according to the Administration’s own proposals, lead to rationing of treatments and procedures as a way to contain costs.  As a result, many Members may be concerned about proposals to place government bureaucrats between doctors and patients in deciding the course of health care treatments.